Strategies · Library · Real estate
§16.2Hedges and structures
Mixed-asset diversification with real estate
Add real estate to a stock and bond portfolio because its correlation with them is low, even in crises and especially over long horizons. The size of the allocation depends on risk preference and horizon.
Open in the builderAs the book sets it out, long only.
- Asset class
- Real estate
- Held for
- Years
- Data
- ARCANE has the data
- Symphony
- Builds in the symphony builder
The rule
- Signal
- Correlation and risk of real estate against stocks and bonds
- Entry and exit
- Buy and hold, rebalance occasionally
- Sizing
- Fixed weights chosen by optimisation or investor preference
How it fails
- Property returns are smoothed and illiquid
- Correlations rise in some crises
- Allocation depends on estimates
Data it needs
- return series for stocks, bonds and real estate
REIT ETFs such as VNQ stand in for property.
How ARCANE uses it
Alpha could use it to answer how much property exposure suits a mixed portfolio. Paper only.
Builds in the symphony builder. A fixed-weight mix of stocks, bonds and a REIT ETF.
Source: Kakushadze and Serur (2018), 151 Trading Strategies, §16.2, p. 111 of the SSRN version. Described in our words. Hedges and structures is ARCANE’s filing, not the book’s.